TCS, Infosys, HCLTech rise up to 4%: Why are IT stocks rising today?

TCS's stronger-than-expected June-quarter results pushed IT stocks higher on Friday. The Nifty IT index climbed 1.82%, while the BSE Focused IT index gained nearly 2%.

In Short

• TCS Q1 earnings beat expectations, profit up 5% to Rs 13,349 crore
• Nifty IT index rose 1.82%, led by strong gains in major IT stocks
• TCS reported $9.5 billion order book including $800 million AI deal

IT stocks rallied sharply on Friday after Tata Consultancy Services (TCS) kicked off the June-quarter earnings season with better-than-expected results and an optimistic outlook, easing investor concerns over slowing technology spending.

The gains come after global technology stocks had been under pressure over the past week amid concerns that the artificial intelligence (AI)-driven rally was losing momentum. TCS's earnings helped reassure investors that demand for digital transformation and AI projects remains healthy.

Around 10 am, the BSE Sensex was trading 800.61 points, or 1.04%, higher at 77,542.43, while the NSE Nifty50 gained 247.80 points, or 1.03%, to 24,210.60.

The Nifty IT index climbed 1.82%, while the BSE Focused IT index gained nearly 2%.

Among the top performers, Tata Elxsi surged 2.84%, KPIT Technologies gained 2.75%, LTIMindtree rose 2.67%, Oracle Financial Services Software (OFSS) climbed 2.45%, Coforge added 2.41%, while Tech Mahindra, HCLTech, Infosys and TCS gained around 2% each.

TCS EARNINGS SET THE TONE

The biggest trigger behind Friday's rally was TCS's June-quarter earnings, which came in slightly ahead of market expectations.

India's largest IT services company reported a 5% year-on-year increase in consolidated net profit to Rs 13,349 crore, while revenue from operations rose nearly 14% to Rs 72,275 crore. The board also announced an interim dividend of Rs 12 per share.

Beyond the headline numbers, investors drew comfort from the company's healthy order pipeline. TCS reported a $9.5 billion order book during the quarter, including an $800 million AI-led transformation deal, while its annualised AI revenue run rate increased to $2.6 billion.

MANAGEMENT'S OUTLOOK BOOSTS CONFIDENCE

Markets also reacted positively to the management's commentary, which suggested that business conditions could improve over the coming quarters.

CEO K Krithivasan said he remains optimistic about a recovery in technology spending by manufacturing and life sciences clients in the September quarter. While consumer demand will continue to depend on geopolitical developments, he added that TCS does not expect AI to reduce overall business opportunities.

"We don't see a massive contraction or deflation due to AI. If any, they are compensated by additional opportunities that we generate through AI," Krithivasan said.

Another positive surprise came from hiring.

TCS added 9,279 employees during the quarter, taking its total workforce to 5,93,798. It was the company's strongest quarterly hiring in more than a year, signalling confidence in future demand despite an uncertain global environment.

BROKERAGES SEE MORE UPSIDE

Brokerages also struck a constructive tone after the results.

JM Financial Institutional Securities maintained its "Add" rating on the stock with an unchanged target price of Rs 2,205.

The brokerage said revenue growth and operating margins were broadly in line with expectations, while the company's forward-looking indicators remained encouraging. It highlighted the strong $800 million mega deal win, improving demand outlook for the second quarter, rising headcount and management's expectation that operating margins could gradually improve to over 25% by the end of the financial year.

JM Financial also noted that TCS continues to prioritise revenue growth and remains willing to invest despite macroeconomic uncertainty, although it said execution will remain a key monitorable.

A SHARP TURNAROUND AFTER GLOBAL AI SELLOFF

Friday's rally is significant because it comes after technology stocks across global markets witnessed heavy selling over AI-related concerns.

The Nasdaq fell sharply earlier this week after investors questioned whether the AI-driven rally had become overstretched. Semiconductor shares also came under pressure after Samsung Electronics' earnings failed to meet elevated expectations, triggering profit booking across global chipmakers.

Those concerns spilled over to Asian technology stocks and weighed on Indian IT companies over the past few sessions.

TCS's earnings, however, changed the narrative. Investors viewed the company's strong deal wins, continued hiring and optimistic management commentary as evidence that demand for AI, cloud and digital transformation projects remains intact despite global uncertainties.

TCS has set a positive tone for the earnings season, but analysts believe the sustainability of Friday's rally will depend on results from other IT majors such as Infosys, HCLTech, Wipro and Tech Mahindra.

Investors will also closely monitor management commentary on client spending, AI investments and demand trends in the US and Europe, which remain the biggest markets for Indian IT companies.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

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